Food for Thought: Could Carefree Bulls Soon Utter 'What Were We Thinking?'

 | Jun 05, 2017 | 11:02 AM EDT
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It wouldn't be difficult to find good explanations for why the market is selling off, but the problem for headline writers is that it isn't selling off. The terrorist event in London, the dispute with Qatar, political finger pointing and mediocre economic news are having no market impact.

Breadth is running in the red with about 2,600 gainers to 3,700 decliners as small-caps revert to lagging after a brief surge last week. New 12-month highs exceeded the 1,000 level last week but are down to around 360 today.

While the action is a bit softer, even a pullback in index heavyweight Apple (AAPL) isn't stopping the Nasdaq 100 (QQQ) . QQQ is now up 11 of the last 12 days. The only losing day was five cents on May 31. Amazon (AMZN) and Alphabet (GOOGL) are making up for Apple's shortcoming.

I do not like historic comparisons, but the rampage in the QQQ is not unlike some of the frothy action of the past. The bulls' response to this is to argue that valuations are not at all extended. That might be, but it's the lack of any serious concerns that is the hallmark of froth. When there is no real worry, stocks can keep on running, but it is a dynamic that eventually leads to thinking, "What were we thinking?"

Biotechnology has been the hot sector of the day. A few names such as Loxo Oncology (LOXO) and Celsion (CLSN) are holding up, but the majority has sold off sharply after some big gap-up opens. I sold down a few names in the group and don't see any reason to rush back in.

Nutanix (NTNX) , which was my "stock of the week" last week, is acting better, and my top pick The Trade Desk (TTD) is still holding up well. There are a few technology names such as Nova Measuring (NVMI) and Ceva (CEVA) doing well, but I'm not adding anything right now.

The indices continue to have strong bids, but the upside momentum in individual stocks is limited to a small group.

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